MaineBiz: Samoset Resort reopens with a $4M upgrade (March 19, 2012)

The Samoset Resort is unwrapping $4 million in improvements aimed at returning the venerable midcoast resort to full-season operation after a bruising Great Recession sent Maine’s hospitality industry reeling.

The improvements, to be formally unveiled when the Rockland resort reopens for four-season operation on April 27, represent a major bid by resort owner Ocean Properties to restore Samoset’s status as a year-round destination and stay ahead in a luxury hospitality market that shows signs of an outsized revival.

With consumers confronted by $4 a gallon gas, plenty of vacation options and lingering employment worries, Maine’s hoteliers face deep challenges as they climb out of a downturn that pushed Samoset officials in 2008 to cease year-round operation.

The upgrade is expected to help Samoset’s return to year-round operation by targeting upscale visitors in the high season and local groups and conventions off peak. The improvements include a full-service spa, an Italian restaurant and lounge, extensive room renovations and three new luxury guest cottages. There’s 21,000 square feet of updated and renovated meeting space. iPod docking station stereos, refrigerators, Keurig coffee makers, safes and complimentary bottled water were added to every guest room. A new nine-hole oceanfront disc golf course bolsters what Samoset calls “the Ultimate Backyard Experience,” which also includes facilities for tennis, basketball, outdoor pool, shuffleboard, volleyball, badminton, croquet, horseshoes and a playground. Finally, golfers will find new driving range mats and drainage on holes 6, 7, 16, and 18.

Like any business decision, the success of the upgrades depends on time and money. On both scores, observers give Samoset a great chance at re-emerging as one of Maine’s top resorts.

Daren Hebold, an analyst with Daigle Commercial Group, a Portland-based broker of hospitality real estate, said 10-year cycles are a minimum for resort owners to make upgrades, lest aging environs begin to repel the high-demand resort guest.

“It’s the only way to stay competitive,” he says. “But it requires a high degree of discipline.”

Hebold says renovations are so important to the industry that lenders typically make hoteliers salt away 4% to 5% of revenue for capital reserves.

“That’s 40% of the value of your hotel over 10 years,” Hebold says. “Most [resorts] that are not in a franchise agreement are probably not saving that as they should be. And those who do not continuously innovate and upgrade their properties fall behind quickly.”

Of the upgrades at Samoset, Hebold says: “I think it will absolutely pay off, in spades.”

At least one competitor agrees.

“They’ve done some very nice things,” says Bob Smith, owner of the Sebasco Harbor Resort down the coast in Phippsburg. “Ocean Properties has got some good resources, and it’s great they’ve focused some of it for the benefit of [Samoset]. I’m happy for them.

Samoset’s next chapter

Founded in 1969 as a small, family-owned business, Ocean Properties has ballooned into one of the largest privately held hoteliers in North America, owning and managing 56 resorts in 13 states and U.S. Virgin Islands and dozens more in Canada.

The 230-acre oceanfront Samoset property, whose history as a resort dates back to 1902, was rebuilt and reopened in 1974 after years of neglect and a devastating fire. The 178-room hotel is the center of a campus that includes luxury cottages, an 18-hole championship golf course, a health club, full-service spa, indoor and outdoor heated pools, outdoor sports facilities, a children’s playground and Wi-Fi access throughout.

Being able to pay $4 million for upgrades completely out of cash reserves gives Samoset a unique advantage.

“At least two or three [competitors] have gone through significant renegotiations with lenders just to stay afloat,” Hebold says. “Other large oceanfront resorts in Maine that are comparable with Samoset … have really struggled to rebuild after 2009, the worst year in 35 years for the lodging industry.”

Samoset General Manager Connie Russell welcomes a new era for his facility with unbridled enthusiasm.

“To meet today’s travelers expectations, we needed to raise it to the next level, and doing that included modernizing our food and beverage outlets and creating the addition of a new spa” among other improvements, Russell says. The upgrades should solidify Samoset as a year-round retreat for couples, families and groups, he says.

The renovation began in 2009 with a new outdoor pool and continued in 2010 with improvements that included $400,000 in kitchen renovations made during the resort’s off-season closure.

Russell says the resort tried to take advantage of the recession and lower bookings, closing for the off-season to make the renovations.

“The timing was ideal,” Russell says. “We had to do these when we were closed, because we wouldn’t be able to service our guests if we were open.”

The importance of timing a multimillion dollar investment is not lost on Smith.

“It’s been tough for a lot of us to make those investments over the last four, five years,” he says. “Maine still has family-owned [hotels], but sometimes it’s a little tougher for the little guys to compete.”

Smith describes $5 million in improvements to rooms and a waterfront spa done at his resort in 2008, just as the Great Recession was set to explode.

“They did a great job on the work. Twenty-three new suites and spa we built at that time helped us weather the storm,” he says, adding: “It didn’t seem that big a risk at the time.”

“To get that return on investment has taken longer than everybody thought,” Smith says. “It’s not quite as easy to do as in ’06 and ’07, when things were going great for everyone.”

Gains throughout the industry

Fortuitous timing may also come if industry trends and the U.S. economy continue to improve, as they did in 2010 and 2011. Market research firm IBIS World says more consumers and business customers are staying in all types of U.S. hotels and motels since the recession. Some of that activity mirrors the uptrend in the U.S. economy, while some if it may be te result of a weak U.S. dollar. International arrivals to the United States in 2010 were up 8.7% from the prior year and will likely outperformed consensus expectations for a 6.2% increase in 2011.

Analysts expect those trends to continue and say the resort and luxury space has become the single best growth segment for U.S. hotel conglomerates. Over the next five years, IBIS World forecasts that “the industry will begin to expand again, particularly into segments such as extended-stay hotels, boutique hotels, spa and health retreats and resorts” — Samoset’s sweet spots.

It’s also easier to recoup a $4 million investment at an upper-scale property where rates are higher, Hebold notes.

A November 2011 PriceWaterhouseCoopers study on the U.S. hospitality industry found that gains in revenue per available room — RevPAR — exceeded expectations in the third quarter of 2011, helping raise 2011 full-year revenue growth estimates to 7.8%. For 2012, the expectation is for 6.5% revenue growth, largely driven by price increases.

U.S. booking volumes also are recovering to pre-recession levels, with IBIS reporting 2.9 million daily room nights occupied at luxury properties during July, August and September 2011. On a seasonally adjusted basis, that’s 3.1% ahead of the previous peak in the first quarter of 2006 and 4.6% higher than 2010 overall.

Trends on the horizon

Externally, resort operators are eyeing geopolitical risks that could crimp air travel and raise fuel prices, along with other macro trends. They also must keep up with the latest in customer expectations, which may not be reflected in the current states of their facilities after years of forgoing improvements to save cash.

Arizona-based resort analyst Michael Kintner sees ‘going green” as an emerging trend for 2012, which can mean anything from using organic bed sheets and providing solar power or climate-neutral rooms to, counterintuitively, providing more technology outlets so guests can plug in iPhones, tablets, touch-screen kiosks and DVRs.

At the end of the day, it’s amenities such as these that prompt people to book at a resort, says Russell.

In the event of a global slowdown or other uncontrollable risks, Russell says the Samoset will increasingly rely on locally sourced business — with groups, conventions and Mainers — to make its $4 million year-round strategy pay off.

Next winter, Samoset managers hope to drive local bookings and sales with a series of “holiday happenings,” activities such as brunch with Santa, a new ice skating rink with bonfires, an outdoor fire pit overlooking the ocean, and winter weekends and school break vacations with family activities, culinary events and spa treatments.

“We want to attract more group business. That’s primarily the reason we added the spa, because that is an expected amenity,” Russell says. “It’s one of the top three amenities customers want. It’s higher than golf, actually.”

The tactic to draw more business in winter is being watched by Smith and others in the industry. “They’re pretty much the only coastal resort that can do a conference product in the winter,” Smith says. “If that succeeds, it will be good for all of us.”

Russell says so far Samoset bookings are pacing ahead for 2012. “Especially group [bookings] is ahead,” he says. “Now that we have a spa, groups will think about coming here.”

Boosting sales to groups to generate revenue is “disproportionately important” to the luxury segment of the hotel industry, according to the IBIS report.

Group demand is recovering, even though its contribution to occupancy is approximately 16% below 2007 levels.

Hebold, the analyst, says occupancy will be a bigger growth driver than rate increases. “We accomplish that by targeting not just the leisure traveler, but groups,” he says. “There is a lot of capacity.”

Neither Russell nor Hebold sees $4 per gallon gas as having a significant impact in attracting New England guests. “Only at the lowest level of hoteling is that a consideration,” Hebold says. “At $129, $109 a night, it’s a factor. But not for a Samoset crowd.”

He expects the Samoset will leverage their improvements to increase rates, though not immediately. “Assuming flat occupancy, which may be the case for Maine, they stand to bolster their room rates substantially,” Hebold says. “Word travels very fast in today’s world of TripAdvisor and everything else. The [reactions from the] first people who stay in those rooms, you’d be surprised how fast that travels.”

The market ahead

However, the Samoset will face a new competitor in the convention and event-facility market. Last year, athenahealth purchased for $7.7 million the 380-acre oceanside Point Lookout convention center in nearby Northport, with its 40,000 square feet of conference rooms plus tennis courts, a fitness facility, bowling alleys and 106 cabins.

Russell doesn’t seem worried. “Actually,” he says, “the biggest competition is our own sister properties, namely the Harborside [Inn] in Bar Harbor, and we have a new hotel going up there this year, the West Street Hotel [opening in June]. It’s good because we can actually refer overflow business to each other and rotate groups, which is key.”

Other Ocean Properties resorts in Maine include a Fairfield Inn in Bangor, Bar Harbor Regency, a Days Inn in Bar Harbor, Harborside Hotel & Marina in Bar Harbor, a Holiday Inn in Bath, the Portland Marriott at Sable Oaks and the Holiday Inn Express in South Portland.

Russell says no rate increase is in the cards this year, but probably next. He says they typically come in every-other-year cycles. Samoset’s peak room rates currently range from $300 to $400 nightly for rooms, and up to $1,000 for standalone seaside cottages, although Hebold says markdowns of 15% to 20% are common when rooms are booked through online travel agencies. The resort also has a real estate unit that rents and sells condominium time share units.